The True Cost of Bailout

These people just don’t get it that if we fail to act, we screw everyone long term not just a bunch of rich investors.

Mad as hell – taxpayers lash out – Sep. 21, 2008

NEW YORK (CNNMoney.com) — “NO NO NO. Not just no, but HELL NO,” writes Richard, a reader from Anchorage, Alaska.

“This is robbery pure and simple,” Anna from Denver posted on CNNMoney.com’s TalkBack blog this weekend.

“It’s our money! Let these companies die,” added Claudio from Plainville, Conn.

After President Bush petitioned Congress Saturday for the authority to spend up to $700 billion to to bail out a financial industry on the verge of collapse, he said the high price tag was not only justified, but essential.

“It is a big package because it’s a big problem,” Bush told reporters at a news conference. “The risk of doing nothing far outweighs the risk of the package.”

As I said yesterday, Bush is right, this bailout must be done. No one, including myself, wants to reward these people for bad management much less GREED, but this is no longer about the people at the top. I strongly support the notion if they are even the slightest bit outside of the law that we prosecute them and send them to federal pound me in the ass prison. Tax payers have a right to be angry over this, but now is the time for being rational.

Merrill Lynch and Lehman Brothers have primary or secondary financial ties to almost every retailer in this country. Failures at these houses would be disastrous for most of these businesses. For those tax payers who say let them fail, lets take a look at how this will affect your average Joe.

Most retailers operate in the red until just after Thanksgiving. For those that don’t understand let me put it simply for you, until you do your day after Thanksgiving shopping most retail stores are losing money. They stay open because investment banks keep them afloat with available credit. If those companies fail and that credit disappears many retailers will simply be forced to close their doors and others will take drastic measures to try and stay in business.

I don’t need to tell you about all retailers, just one, since most of the others aren’t going to be in business long enough to matter if we didn’t bailout these companies. I am just going to talk about one, Walmart. I have no love for this company and want to see many of their practices changed, I however do not want to see them fail, too many people depend on this store for good or ill. They are the worlds largest private employer, and the largest US user of commercial services. They account for 20% of all US grocery sales and are the single largest retailer of toys, clothes, and housewares in the world. They are also the largest or sole local provider of those services for many communities. Like it or not this means a lot to the average tax payers.

Here are the effects on Walmart you can expect should we allow these greedy investment banks to fail the way many taxpayers suggest. A third of Walmart stores operate at a loss all year and only stay afloat because forty percent of the products Walmart sells are cheap private brand items where 90% o f the price is profit for Walmart Inc. This is enough under most circumstances to justify keeping a store open. Failure of these banks will cause Walmart to reevaluate the store profitability and will likely close a sizable number of those stores. If Walmart is your only big local store and it closes do to being unprofitable don’t expect someone to move in to take its place. You will simply have to go further out, and with gas likely to $5.00 soon ask yourself how much more it is going to cost you just in travel to do your shopping.

Fine you say, it won’t affect me I live in a big town with lots of Walmarts around me that I drive by to and from work. You will feel it if not immediately when those that depended on those stores start filing for unemployment, welfare and are forced to move to bigger cities to find work putting them in direct competition with you for everything from housing and parking when you go some place to the availability of consumer goods.

The one thing welfare people are good at is buying up all the cheap products while the working folk are stuck at work. You can also expect that with the closure of so many retail locations the prices at the remaining stores to rise sharply. The immediate rise will likely be between 20% and 30% across the board. Over the longer term of one to two years you can expect a rise of 100% to 200%. With the average grocery bill of $288 a week for a family of four now (includes essential household goods such as toothpaste, laundry detergent, dish soap), you must ask yourself how much more can you afford to spend.

So you say you’ll cut back or buy only generics. That is all well and good, but those price increases are across the board and the variety of generic store branded products will start to be limited by profitability too.  Cutting back on other goods or entertainment will simply put more people out of work, and into competition with you. Even if you can keep your grocery bill under control, you then need to move back to your other spending.

All those prices are directly tied to availability of commercial credit.  If Walmart has to pay Hanes or Proctor and Gamble upfront for everything you can expect less will be stocked and their increased cost passed on to the consumer.  Walmart is probably not your first choice of clothing for many items, but the reduction of so many other retailers will leave many people shopping here  whether you like it or not. If you have growing kids just the essentials of socks and underwear are going to squeeze into your budget. Clothing prices will be up for many reasons. Adults might be able to say no one will see our underwear so we don’t need new ones. Kids on the other, while still not showing off their underwear, do grow out of them rather quickly. Where a six pack of them costs around $8.00 now and require you to buy news ones once or twice a year.  When they start costing $12, $15, or $20 for each kid the prices really start to hit your budget. Furthermore do you really want be forced into deciding whether or not to get your kid a toy for their birthday or a package of underwear? Those will be the choices we will be forced into should retail fail.

Let us move on. The cost of this bailout will likely be closer to a trillion dollars rather than the estimated $700 billion we are being told about. The plan doesn’t include an increase in taxes which may or may not be necessary later on depending on how future military spending is dealt with. I want a final plan that addresses that issue. once these houses are put back in order, which I believe will be possible under proper over site the government will be reaping the benefits of the institutions. Not counting for that less than a hundred dollars of the average Joe’s tax monthly tax burden will be spent on this. Could that money be better spent on other programs? Sure, it could. On the other hand ask yourself if over then next year you can afford a fifty to hundred percent price rise on everything you buy. While that increase might not mean anything to the McCain’s Palin’s, or CEO’s of major financial institutions it will hit Joe and Jane American where it hurts regardless of political or religious affiliation.